Clifford Chance is submitting this letter to comment on the "reporting out" proposal described in Release No. 33-8186 as a possible alternative to the proposed "noisy withdrawal" provisions of 17 CFR Part 205 described in Release No. 33-8150.

On December 18, 2002, we submitted two letters regarding the proposed Part 205 as described in Release No. 33-8150. One of these discussed the proposed Part 205 generally, and the other discussed the effects the proposed Part 205 would have upon non-U.S. lawyers and upon U.S. lawyers who practice law in countries other than the United States. Our letters addressed both problems regarding the proposed processes for reporting material violations "up the ladder" within a company and problems with the proposal that under some circumstances an attorney would be required to withdraw from representing a company and to notify the SEC that the attorney had withdrawn "for professional reasons" (the so-called "noisy withdrawal" proposal).

The final Rules adopted in Release No. 33-8185 responded in what we believe was a very constructive way to most of the concerns described in our December 18 letter, and in letters from many other law firms, relating to the proposed requirements as to how attorneys would report "up the ladder" within companies. We are grateful to the Commission for the obvious consideration it gave to those concerns.

We continue to have the concerns described in our letters about the "noisy withdrawal" proposal. However, the purpose of this letter is to state that we also have serious concerns about the alternate "reporting out" proposal described in Release No. 33-8186.

The concerns regarding the "noisy withdrawal" proposal that we expressed in our December 18, 2002 letters involved (a) the risk the "noisy withdrawal" requirements would pose that lawyers who complied with it would be subject to disciplinary action for violating their clients' attorney-client privilege, and (b) the likelihood that requiring attorneys for a company to provide information to the SEC (or anyone else) outside the company about communications with people within the company would impair the attorney-client relationships that enable attorneys to exert the influence that Section 307 of the Sarbanes-Oxley Act of 2002 seeks to promote.

The possible alternative to "noisy withdrawal" proposed in Release No. 33-8186, would require an attorney who is not satisfied with a company's response to a report of evidence of a material violation to withdraw from representing the company and notify the company in writing that the withdrawal is based on professional considerations, and would require the company, within two business days, to report the notice and the circumstances related to it on Form 8-K, 20-F or 40-F. That would remove attorneys' concern about possible disciplinary action. However, moving the reporting obligation from the attorney to the company would not eliminate the harm the existence of the requirement to report outside the company would do to the relationship between public companies and their attorneys.

Traditionally, the attorney-client privilege belongs to the client, not to the attorney. Therefore, at least in the United States, it can be waived by the client. The proposed Rule 205.3(e) would, in effect, be a mandatory waiver by companies of the attorney-client privilege. It is not at all clear that the Commission has the legal authority to require this, particularly in view of the fact that there is nothing in the Sarbanes-Oxley Act that requires, or contemplates, reporting of communications between attorneys and client companies outside the companies. Further, the possibility that a disagreement between a company and its attorney might have to be publicly disclosed would almost surely lead at least some companies to be careful not to disclose to their attorneys information that might generate disagreements that would lead to withdrawal and the need to report the circumstances relating to the withdrawal. That would remove the attorneys' ability to convince their clients not to take the steps the attorneys might view as material violations. Indeed, fear of a reporting out obligation could impede discussion of relatively day to day concerns for fear that a particular attorney might view them as involving material violations.

We appreciate the fact that the final rules adopted in Release No. 33-8185 sharply reduce the circumstances under which it is likely that an attorney would have to withdraw because a company had not adequately responded to evidence of a material violation. However, this, if anything, heightens the reasons it would not be advisable for the Commission to adopt either a "noisy withdrawal" or a "reporting out" requirement. In view of the now existing "up the ladder" reporting requirement (which we wholly support), it is extremely unlikely that there would be a significant number of instances in which an attorney would in fact be required to withdraw and either the attorney or the company would be required to report the withdrawal. The number of times this would happen almost surely would be far too few to justify the disruption to the relationships between attorneys and their public company clients that almost certainly would result from adoption of either a "noisy withdrawal" or a "reporting out" requirement.

In view of what we have said above, we urge that the Commission not amend Part 205 to include either a "noisy withdrawal" or a "reporting out" requirement.

We appreciate the opportunity to submit comments regarding the proposal to add a withdrawal and "reporting out" requirement to Part 205.